David Rounick Explains Why Restaurants Have Such High Failure Rates
Just the thought of a restaurant start-up business loan seems to make lenders cringe, but restaurants continue to be one of the most popular new ventures each and every year from the countless stacks of loan applications made by American entrepreneurs…despite some sobering facts about the probability of their likely failure that might make you reconsider making a trip to your favorite bank loan officer.
That’s right — the harsh reality here that you may not want to hear (but need to nonetheless), is that restaurant start-ups are not only known just as “risky” pursuits, but are, in fact, “the riskiest” ventures out of all bets, thus making the likelihood of your little dream’s success seem distant or even unlikely.
So why are restaurants such popular ventures? What makes them so attractive with such dismal statistics seemingly irreparably attached? When you think about it, you can’t help but consider the fact that everybody must eat (if they want to survive) and nearly every single person will eat and pay for more than just one meal at a dining establishment over the course of any given year, which lends one to naturally assume failure would not only be unlikely, but maybe even impossible. Right? Well, unfortunately the statistics tell a quite different story — and the reasons for these failed dreams may surprise you.
In 2017, according to market-research firm NPD Group, Inc., people spent at a rate of about double on eating meals out than they did on other retail goods such as clothing or cars. One of the biggest pitfalls however, is the severity of even the smallest influences imposed by Federal law. It’s clearly a double-edged sword. Restaurants operate on a notoriously slim profit margin, so every time the Federal minimum wage is increased by even a single dollar, another wave of business owners find themselves clearing their tables for good and shutting their doors on the dream. Another big one, yet again attributed to none other than our own Federal government, is the ever-growing mountain of food and health regulations…which not only increase costs that burden profit margins, but make the legal barriers to entry high enough to scare off even the bravest of entrepreneurs. For those owners that don’t pay taxes and pay staff “under the table”, it’s simply a matter of time before that can shut down the business in what seems like minutes. Many restaurants try to avoid paying state or federal restaurant taxes and if caught, they will be slammed with serious fines by the IRS sooner rather than later. Places shutter quickly when this situation occurs.
The list of top reasons why restaurants fail is extensive, such as inexperienced owners, sinking too much money into pre-opening construction and prep, poor management, weak marketing, bad food, and the list goes on and on. The truth is that building and maintaining a profitable restaurant is one of the most difficult business ventures to carry out but with more and more delivery services such as GrubHub and Uber Eats integrating into many cities across the United States, as well as reservation systems such as Open Table covering the map, it is probably easier now to kick-start a restaurant than ever before (but that doesn’t mean it’s going to last).
The final factor Mr. Rounick had time to investigate during our meeting was the simple, and sadly unavoidable duality inherent in the restaurant business these days: the wonderful selection of food supply outlets we enjoy the luxury of having available to us also makes it that much more difficult to make enough money to justify keeping doors open. Too much competition has driven down prices, especially with so many big chains popping up that smaller operations just can’t compete against.
So, think twice, at the very least, before jumping into the restaurant business…and do all your homework before dropping a dime on the venture — or at least don’t say David Rounick didn’t try to warn you!
Rounick Reviews is a private endeavor by Mr. David Rounick, of Bryn Mawr, Pennsylvania. It’s mission is to seek out and recommend only the best dining destinations in the area and let people know what’s going on, what’s hot and what’s on it’s way out. Rounick Reviews, founded by David Rounick, is a Philadelphia-based regional restaurant review source based on real-world, true feedback from people that actually live in the Philadelphia area and have actually been to these restaurants. Given his entrepreneurial spirit and frustration with seeing way too much inaccurate and negative content online, David Rounick wanted to have a purely positive, helpful website that delivers true restaurant reviews and quick “Best of Philly” restaurant lists to those people either living or visiting. Rounick Reviews is all about that – positive, simple reviews with core restaurant information along with quick and easily accessible lists of the “best restaurants” in the Philadelphia region. As always, we welcome feedback and this content is driven by people just like you -– so submit a restaurant now by visiting rounickreviews.com.